Philippines may not be ‘ready for 2015 Asean free trade’

Twenty years after signing the AFTA, Philippines may still not be ready to join the ASEAN Economic Community (AEC) by 2015

NOT READY FOR AEC. PIDS President Josef Yap says the Philippines 'jumped in too soon' in signing the AFTA, joining the WTO. Photo courtesy of the Philippine Information Agency.

MANILA, Philippines – Twenty years after the Philippines signed the Asean Free Trade Area (AFTA) agreement, the country may still not be ready to join the ASEAN Economic Community (AEC) by 2015.

In an interview with Rappler, Josef Yap, president of state-owned think tank Philippine Institute for Development Studies (PIDS), said that without a strategy in place, the Philippines was not ready for many things, including its membership to the World Trade Organization (WTO) in 1995 or various free trade agreements (FTAs) undertaken in recent years.

Yap said the absence of an industrialization policy may prevent the Philippines from sharing the gains of globalization, which it’s neighbors such as Singapore, Taiwan, or Japan were already able to enjoy.

“We jumped in too soon without any strategy. The pendulum swung too far to the right,” Yap said. “We didn’t adjust effectively unlike our neighbors. So we did not experience the same level of investment inflow as our neighbors.”

Crafting an industrial masterplan

Yap said having an industrial masterplan in place would have made the Philippines’ accession to the WTO in 1995 easier in the sense that it would have paved the way for infrastructure projects that will link producers to markets as effectively as what happened to other countries.

He said this is the reason why his advice to Trade Undersecretary Adrian Cristobal was to veer away from signing any new trade agreements, including FTAs, and focus more on the country’s supply-side constraints.

These constraints include problems with infrastructure, logistics, and firm’s competitiveness. Yap said focusing on resolving these issues would render far better results than changing the 60-40 rule in the constitution or granting more incentives and subsidies.

Yap said this is the reason why the PIDS is now working with the Department of Trade and Industry (DTI) in crafting an industrial masterplan that will be used until 2030.

The plan will consolidate the roadmaps of 32 industrial sectors. The roadmaps will include their goals and aspirations as well as the challenges they face in a globalized world.

Yap said the masterplan will also include measures on how sectors can overcome these challenges.

“We (will) go back to the concept of firm level competitiveness (which means) what constrains their competitiveness and each sector will have their common concerns and then they will have sectoral concerns and then you have to develop this mechanism to address these concerns,” Yap explained.

Solutions sans cha-cha

Yap said there are ways to improve firm level competitiveness without resorting to charter change, incentives, or subsidies.

Yap said changing the constitution as a means to encourage investments and ushering economic growth will take time. Solutions that require mere resolutions in the local level or agency level should be sought.

He added that incentives and subsidies will only make firms dependent on the government. It will also make them lazy in increasing their competitiveness.

“(These are) necessary measures that can be implemented without any prolonged debates. If you review the 60-40 (rule), that will take some time,” he said. “Incentives are actually superfluous. It’s a collective action problem. Our major problem will still be infrastructure in the Philippines.”

Yap said solutions should include building sufficient and well-targeted infrastructure and implementing improvements in logistics. Examples of these are the upgrade of ports and opening up the shipping industry.

He said given that the Philippines is an archipelago, infrastructure to support ports should be a priority while encouraging other firms to enter the shipping industry, particularly when it comes to handling break bulk cargo, will make logistics costs more competitive.

“One important aspect is ports, making our ports efficient. There are these studies that compare the port handling costs with the Philippines and other countries and we have one of the highest port handling costs,” he said. –


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